An extremist, not a fanatic

July 15, 2016

Older readers might remember a TV show called “How”, which began – in unPC fashion – with the presenters raising their hands and shouting “How”. I was reminded of this because the launch of Angela Eagle’s leadership bid raised exactly this question.

Jeremy Corbyn is unable to provide the leadership that this huge task needs. I believe I can.

How?

She continued:

I will unite, I will not divide. I can bring our Party together again.

How?

I fear this lack of important detail is not an idiosyncratic failure of Ms Eagle’s. Instead, it illustrates John Gaffney’s point that Labour “doesn’t know what leadership is, doesn’t want to know, and doesn’t like it – so doesn’t know what it entails.” This, I think, is true in three ways.

First, leadership – like much else – is about mechanisms. The question is: through what precise mechanisms does leadership translate into results? Ms Eagle doesn’t answer this question. She is guilty of what I complained about recently: the “leadership-?????-success” fallacy.

Secondly, what matters is not so much getting the best person to be leader as getting the right match between the candidate and the job. As Boris Groysberg has shown (pdf), managers of similar ability are successes where there’s a match between their skills and the organization’s needs, but not where there is a mismatch.

This requires that Labour understands precisely what qualities it needs in a leader, and identifies the individual with those qualities. Wishful thinking about what would happen if only the party had a “proper leader” is not good enough. Instead, the question is: what exactly is the shape of the hole we’re trying to fill, and who fits that shape?

There’s something else. One key feature of good leadership in business is the ability to get feedback and act upon it. Two of the questions Bloom and Van Reenen ask in their work (pdf) assessing management competence are:

How well do companies track what goes on inside their firms, and use this for continuous improvement? [And] do companies set the right targets, track the right outcomes and take appropriate action if the two are inconsistent?

By these criteria, Corbyn’s critics* are abject failures. They failed to take feedback from their defeat to him last year. He didn’t win so crushingly because he’s a political genius – he spent 32 years in parliament without ever being hailed as such – but because his opponents (except perhaps for Liz Kendall) were offering little but vacuous marketing-speak. Corbyn’s critics should have learned from this that they need to develop some kind of inspiring vision of centre-left principles and policy. With precious few exceptions, though, this is still lacking. Corbyn's opponents seem not to have learned that they are not entitled to run the party, but must earn the right to do so.

Now, I don’t say this to defend Corbyn. His inability to placate fractious MPs and his downright bizarre decision to attend a Cuba Solidarity meeting when there were far more important things to do suggest he isn’t up to the job. In this context, though, the failure of his critics to understand what leadership means is simply tragic.

* I don’t want to use the word “right” in this context as I’m not sure the left-right distinction is helpful in this context.

July 14, 2016

Ed Miliband never got to Number Ten, but his words did. Theresa May’s talk of fighting “burning injustice” could have come from him. As Phil says, hers was “very much the kind of speech you'd expect Ed Miliband to have made if history turned out somewhat differently.” This poses the question: what should we make of this?

It might, of course, be that her words will prove as false as Thatcher’s when she entered Number 10 in 1979: “where there is discord, may we bring harmony.” This seems to be the view of Chuka Umunna. This, though, raises the question: why is she telling these particular lies?

Another possibility is that, even if she’s sincere, she won’t be able to walk the talk. Her talk of worker-directors, for example, won’t sit well with the Britannia Unchained crew who have called for fewer workers’ rights. With a slim majority, this matters.

However, I prefer the advice of Adam Barnett: let’s take her at her word. If she is sincere, her government will test whether moderate reforms really can improve the efficiency and justice of capitalism. Here, I have several doubts.

- Her aim of “setting people free to go as far as their talents will take them” runs into the many massive obstacles to true equality of opportunity: the tight link between good state schools and expensive housing; private education and tuition; the cultural capital and connections that richer kids often enjoy; and, perhaps, genetics. As James Bloodworth has said:

Genuine equality of opportunity would require a genuine radicalism – radicalism of a kind that British politicians are unwilling to countenance. (The Myth of Meritocracy, p127)

- Her desire to improve productivity runs into the fact that it is in fact very difficult for national policies to raise trend growth. She also faces some nasty headwinds. World trade growth has slowed, perhaps permanently – which is bad for both growth and productivity. And firms are still loath to invest – whether because of falling profit rates, a fear of future competition or a lack of monetizable projects.

- The desire “to create more well-paid jobs” runs into the fact that jobpolarization and the degradation of erstwhile “middle class” jobs means that good jobs are scarce. These problems might be exacerbated not just by future technical change, but by the fact that Brexit jeopardizes good jobs in finance and manufacturing.

- Her desire to reduce exploitation “by unscrupulous bosses” insufficiently recognizes the fact that this requires a massive increase in the bargaining power of the worst-off – something that can only be achieved by some mix of welfare reform (a citizens income), much fuller employment, stronger trades unions and a job guarantee.

Herein lies an opportunity for the left. We should ask of her Adam’s question: “yes, and?” We can point out the contrast between her fine ideals and the (probable) weakness of the policies used to achieve them. We should say that achieving her aims requires bolder measures.

Revolutions often happen when people’s expectations increase by more than objective reality. Ms May might – just might – have opened up such a gap.

My point here is that there is a coherent space to the left of May. There’s also – like it or not – space to the right, in the form of free market thinking. What’s not so clear is where this leaves the centre-left. Perhaps there are good reasons why Mr Umunna seems to be in denial about Ms May’s intentions.

July 13, 2016

David Cameron’s premiership must be considered a failure. He wanted to keep the UK in the EU, but failed; he wanted to preserve the Union but Scotland might well leave as a result of Brexit; and he wanted to heal a “broken Britain” but leaves the country divided and with hate crime rising.

A big reason for these failures lies in economic policy. Unnecessary austerity contributed to Brexit in four ways:

- In contributing to stagnant incomes for many, it increased hostility to immigrants, which some Brexiteers exploited. When combined with high inequality – which Cameron did little to combat – it also contributed to increasing distrust of “elites”. It might well be for this reason that Theresa May has spoken of the need to abandon austerity and reduce inequality: she can now see - with the benefit of hindsight - that these have toxic political and cultural effects.

- In worsening public services, Cameron and Osborne allowed the false impression to grow that immigrants were responsible for pressure on the NHS. As Simon says, some people voted for Brexit because they wrongly thought that lower immigration would improve the NHS.

- Austerity policies ran contrary to the established wisdom of most economic experts. Having shut out experts in one area, Cameron and Osborne were then less able to appeal to them on the merits of staying in the EU. They created a precedent for a rejection of mainstream economics.

- Supporting austerity at home meant that the Tories could not argue for expansionary policies in the euro zone – policies which would have both helped to reduce migration to the UK and which would have diminished the image of the EU as a failing institution. This meant that Cameron could not argue that the UK was playing a positive role in Europe, and could not argue that staying in the EU would lead to a better EU. This meant that the wishful thinking bias was mostly on the Brexit side, rather than the Remain side.

Perhaps Janan Ganesh was right to say that the referendum was unavoidable – though that raises questions of why there was so little trust in representative democracy in the first place. What was all too avoidable, however, was the fiscal squeeze that probably tipped the balance in favour of Brexit.

In this sense, the costs of austerity have been far higher than estimated by conventional macroeconomic thinking. This perhaps reinforces an old piece of political wisdom – that if a government doesn’t get economic policy right, it’ll not get much else right either.

July 12, 2016

There’s something remarkable about Theresa May’s speech yesterday: large chunks of it could have come from a Labour politician.

For example, she spoke of the “injustices” of people from poorer backgrounds having less chance of going to university or getting top jobs or even living a long life. She complained that many people in politics don’t appreciate "how hard life is for the working class"; of workers being “exploited by unscrupulous bosses”; of “irresponsible behaviour in big business” and of an “irrational, unhealthy and growing gap" between workers' and bosses' pay.

She went onto demand a “proper industrial strategy” to raise productivity – one that might block hostile takeovers; of the need to “give people more control of their lives”; of the need for workers on company boards; a “crack down on individual and corporate tax avoidance and evasion”; and restraints upon CEO pay.

If we add to all this her renunciation of austerity and (I presume) acceptance of rises in the national living wage, May is to the left of the position many Labour MPs had in 2015 – and perhaps still have. (I say perhaps because many anti-Corbynistas don’t seem much interested in policy.) It’s no surprise that her words have been welcomed by the Equality Trust.

All those lazy comparisons to Margaret Thatcher miss the point – that there seems a huge ideological gulf between the two.

Of course, this isn’t to claim her as a hard-core socialist. I fear a May premiership would see migrants and benefit claimants treated harshly. And her talk of “setting people free to go as far as their talents will take them” betokens a belief in the false god of meritocracy rather than in substantive equality. But then, all this might also be said of many on Labour’s right.

However, there remains a massive gap between May and leftists like me. Whilst I wholly endorse worker-directors and policies to give people more control, I regard them as stepping stones towards a post-capitalist economy. Ms May does not. She regards them as a means of saving capitalism from itself. As she says: “Better governance will help…companies to take better decisions, for their own long-term benefit and that of the economy overall.”

She recognizes that capitalism suffers from agency failures and that the role of the state is to correct these, so that the short-run greed and incompetence of individual capitalists does not jeopardize the system as a whole. If capitalism is to survive, it must satisfy at least minimal standards of efficiency and justice. Ms May fears that, left to itself, it might not achieve these. It’s for this reason that the Institute of Directors applauds her.

Of course, this raises many questions: is she sincere? Will worker-directors be any more than mere tokens? Can her programme really legitimize capitalism and so reduce popular discontent with “elites”? Can any feasible policies give capitalism back a dynamism it currently lacks?

Those are issues for another time.

There’s another point here. It’s that policies are not the product merely of the autonomous will of great leaders. Instead, they arise from impersonal economic trends. Given that inequality and stagnant living standards are creating dangerous levels of distrust and instability, some reforms of capitalism seem necessary under any government. To paraphrase Milton Friedman, “we are all interventionists now.”

Or perhaps the more appropriate phrase is: “there are no atheists in foxholes.”

July 11, 2016

A performative statement is one which doesn’t describe reality but rather creates it – as, for example, when a priest says “I pronounce you man and wife.”

Calling Corbyn “unelectable” is like that – it’s performative. If enough Labour MPs say he is unelectable, then he becomes so because he looks like a weak leader. To see this, imagine that all Labour MPs had declared that Corbyn were doing a great job. The party would then seem united and so be more popular.

In this sense, when John McTernan accuses Corbynistas of refusing to compromise with reality, he is right in the same way that a man who kills his parents is right to plead that he is an orphan.

I don’t say this to complain. I do so instead to suggest that performativity is more common than we might think. Take three very different examples

- As the wonderful Donald MacKenzie has pointed out (pdf), the statement “markets are efficient” created a reality in which index-tracker funds were launched.

- Priming and stereotype threat can create the behaviour they describe: if women are primed to act “feminine”, they will do so. Judith Butler’s language might not be to everyone’s taste, but she’s got a point.

- Brexiteers claim that leaving the EU would save £350m a week was a barefaced lie. But in helping Vote Leave to win the referendum, it has led to an abandonment of Osborne’s austerity policies which might in fact allow for increased spending on the NHS.

In fact, I suspect that one of the biggest clichés of recent years embodies two other examples of performativity – that the left won the culture war whilst the right won the economic war.

The left did so in part by banishing “unPC” speech (that is, bad manners) and thus helping to equalize – to some extent - gays, women and ethnic minorities. The right also did so by the use of language. For example, the statement that people are entitled to their own money leads to lower tax morale which shifts the Laffer curve against high tax rates. And the language of bosses as risk-takers encourages a misplaced deference to them.

My point here is perhaps a trivial one – that language helps to create reality. The problem is that, for the most part, the right has had more power and ability to do this than the left.

July 10, 2016

For me, the EU referendum raised a question which nobody has so far asked, namely: if there was a case for a referendum, isn’t there a far stronger case for worker democracy?

Many of us were appalled by the atrocious standard of debate in the referendum. Robert Harris called the episode “the most depressing, divisive, duplicitous political event of my lifetime.” PerhapsThatcher and Attlee were right: referendums are a “device of dictators and demagogues.”

Which brings me to the question. If you think the referendum was a good idea, you must surely think worker democracy is a far better one. I say so for three reasons:

- In a company, the electorate is much smaller, so one’s vote – and that of one’s immediate colleagues - is much more likely to matter. This sharpens one’s incentives to think clearly and gather evidence. Ignorance and inattention are not so rational in an electorate of 1000 as in an electorate of 50 million.

- In worker democracy, voters have more skin in the game. Whereas in a national election one might hope that the costs of a bad decision are spread across the whole nation, or borne by others, this is less likely to be the case in a company. If it does badly, everyone suffers. Again, this sharpens incentives to get decisions right.

- Worker democracy asks a better question. It asks: “what do you know? How can this company do better?” It’s a device for doing what Hayek thought a well-functioning market does – aggregating dispersed and fragmentary knowledge. By contrast, a referendum appeals to prejudice, ignorance and feeling.

On top of all this, worker democracy might have longer-term cultural benefits. For one thing, it would change the nature of management, by forcing bosses to listen to workers. And for another, it might increase the self-reliance and vigour of workers. As Tocqueville wrote:

Democracy does not give the people the most skilful government, but it produces what the ablest governments are frequently unable to create: namely, an all-pervading and restless activity, a superabundant force, and an energy which is inseparable from it and which may, however unfavorable circumstances may be, produce wonders. These are the true advantages of democracy.

All this raises the question. Given that the case for worker democracy is obviously so much stronger than the case for a referendum, how can anyone who favoured having a referendum oppose worker democracy?

The answer isn’t that I’m vague about the precise form worker democracy should take. There are countless possible forms, just as there are many different types of political democracy. The appropriate form will differ from firm to firm.

Nor is it because shareholders are the owners of the company and so it is they rather than workers who should have control rights. For one thing, shareholders don’t own the firm. And for another, they have in many cases already delegated control to rent-seekers of dubious competence: why shouldn’t they therefore do so to more competent agents?

Nor is it good enough to complain that worker democracy might introduce adverse incentives, such as a reduced (pdf) incentive for firms to expand. Actually-existing capitalism has all sorts of agency problems. It is silly to compare worker democracy to some mythical idealized form of capitalism. And if we’re talking high theory, the first theorem of welfare economics says that a competitive equilibrium is Pareto efficient. This draws our attention to the possibility that worker democracy plus well-functioning markets might well be more efficient than crony capitalism.

Nor is it acceptable to say there is no demand for worker democracy. This might be due to adaptivepreferences, learned helplessness and to management’s control of the political agenda, rather than to the fact that worker democracy is inherently undesirable.

My point here is a simple one. Worker democracy should – to say the least – be on the political agenda. That it is not is yet further evidence that politics is systemically dysfunctional.

The Leave campaign’s most prominent claim — “We send the EU £350m a week, let’s spend it on the NHS instead” — was untrue and exposed as false repeatedly by the head of the UK Statistics Authority.

From another perspective, however, it might not be so wrong. This is because one effect of Brexit has been to kill off Osborne’s aim of a budget surplus by 2020: Both he and (more relevantly) Theresa May, have abandoned that target*.

This raises the possibility that Brexit will allow an extra £350m per week to be spent on the NHS not because we’ll save on contributions to the EU, but because we will now have a looser fiscal policy.

And there is substantial space for this. 20 year index-linked gilts now yield minus 1.4 per cent, which means that, left to itself, government debt will fall over the long run. To put this another way, it implies that the government could run a significant budget deficit and still stabilize the debt-GDP ratio.

The maths tells us that, if we assume a trend real GDP growth rate of 1.5 per cent and real yields of minus 1.4 per cent we could stabilize the debt-GDP ratio at its current 88 per cent with a primary budget deficit of 2.5 per cent of GDP. This contrasts to a surplus of over two per cent of GDP in 2020 foreseen by the OBR in March. That allows a fiscal easing of 4.5 percentage points of GDP.

In this sense, the government could increase spending on the NHS by around one per cent of GDP – roughly £350m per week – and still stabilize public debt.

Now, I must caveat this hugely. Some of the fiscal space created by the abandonment of Osbornomics will be eaten up in the near-term by a counter-cyclical rise in borrowing as the economy slows. Rick is right to say that, in the very long run, the fact that GDP will be lower means we have less to spend on anything than we otherwise would. If bond yields rise then the maths because less nice. And if our big current account deficit causes a “sudden stop” then all bets are off.

Nevertheless, it’s possible that the abandonment of austerity will allow the government to increase spending on the NHS. I would expect the next Chancellor, especially if s/he is a Leave sympathiser, to do this just this and claim that the Brexiteers’ assertion was correct.

This would, of course, be disingenuous. Brexiteers didn’t say that Brexit would allow us to spend more on the NHS because it would mean the end of Osborne’s sado-austerity.

And there is a paradox here. Increased spending on the NHS, when accompanied by the weaker private sector capital spending which Brexit is likely to cause, means that the share of government spending in GDP will be higher than it otherwise would. I’m not sure if this is what the free market Leavers intended.

* I can’t be bothered to check Leadsom’s position: she probably claims to have invented Keynesianism.

July 07, 2016

Ground truth is vital. Over‑optimistic assessments lead to bad decisions. Senior decision‑makers – Ministers, Chiefs of Staff, senior officials – must have a flow of accurate and frank reporting. A “can do” attitude is laudably ingrained in the UK Armed Forces – a determination to get on with the job, however difficult the circumstances – but this can prevent ground truth from reaching senior ears. At times in Iraq, the bearers of bad tidings were not heard. On several occasions, decision‑makers visiting Iraq…found the situation on the ground to be much worse than had been reported to them.

All organizational structures tend to produce false images in the decision-maker, and that the larger and more authoritarian the organization, the better the chance that its top decision-makers will be operating in purely imaginary worlds.

He wrote those words in 1965.

There’s a depressing inference here. The mistakes Blair made in Iraq were well known - or at least they should have been. This is not just true of the importance of ground truth. In the day job I list nine errors of judgment described by Chilcot, most of which were familiar in the early 00s. Kahneman and Tversky’s classic Judgment under Uncertainty was published way back in 1982, for example, and Richard Thaler’s collections of papers, Quasi-Rational Economics and Advances in Behavioral Economics appeared in the mid-90s. Any serious decision-taker in the early 00s should therefore have been well aware of the vast research on cognitive biases.

But as Chilcot documents, the decision to go to war in Iraq seems to have been taken in utter ignorance of this research.

Why? It would be nice to think that the error was Blair’s idiosyncratic one and now we are rid of him, there’s no problem.

I fear this is too optimistic. It is itself a manifestation of cognitive biases (the optimism bias and fundamental attribution error) and of the “leader-?????-success” fallacy. The very fact that the country is again embarking upon a risky venture without a plan unsupported by good evidence and fuelled by wishful thinking suggests we’ve learned nothing from Iraq. And when we have a semi-credible candidate for Number Ten wanting to “banish the pessimists”, it seems we are still plagued by the mindless optimism that led us into Iraq.

Instead, I fear there’s a deeper problem here. We should ask: does politics select for rationality by weeding out cognitive biases or not*? I fear not. Politicians are selected for overconfidence, and the narrow class background and lack of cognitive diversity of politicians and journalists can promote groupthink.

For me, Chilcot thus poses a systemic question: how can we ensure that political structures favour rational decision-making?

This question will, of course, be ignored. For some, the mere fact that the report discredits Blair is sufficient. And others, of course, have no desire to let politics be tainted by even the faintest whiff of rationality: as Gove said, people “have had enough of experts”. I fear that British politics is like English football: people love talking about it, but they hate thinking about it.

* There’s an analogy with markets here. One argument for markets is that well-functioning ones select against stupid businesses or strategies. Sadly, though, this is only sometimes the case.

July 05, 2016

Nick Cohen and Gillian Tett are both worried about declining trust. Nick fears that “a referendum that was meant to let “the people take control” and “restore trust” will have achieved the opposite.” And Gillian writes:

we are moving from a system based around vertical axes of trust, where we trust people who seem to have more authority than we do, to one predicated on horizontal axes of trust: we take advice from our peer group.

There’s something important missing here – inequality. We have good evidence that increasing inequality leads to lower trust. As Mitchell Brown and Eric Uslaner write (pdf):

Declines in trust stem from economic inequality. As economic inequality increases, people feel that they have less in common with others, and therefore trust less.

The idea here is simple. As Alberto Alesina and Eliana La Ferrara say, “individuals trust those more similar to themselves”. In unequal societies, however, rulers and experts are less similar to laymen, and so are less trusted*. This might be magnified by the outgroup homogeneity bias. Readers of this blog might be well aware of the big differences between, say, Ed Miliband and David Cameron, but to someone living in poverty in Hull they are both posh Oxford types.

As we’re seeing, this distrust has important effects upon political culture. For one thing, as Gillian says, it leads to a groupthink in which every tribe builds its own reality. Also, it erodes representative democracy. One reason why we had a referendum on the EU was that many voters didn’t trust MPs to take the decision for them. There’s a third thing, pointed out by James Coleman:

There seems to be extensive evidence that the rise of a charismatic leader…is likely to occur in a period when trust or legitimacy has been extensively withdrawn from existing social institutions. (Foundations of Social Theory p196)

The popularity of Nigel Farage fits this pattern**: we should worry that the gap left by his retirement will be filled by someone even worse.

All these processes are exacerbated by a weak economy, because as Ben Friedman has shown, economic stagnation fuels intolerance and closed-mindedness.

The point here is a simple one. The costs of inequality are not merely economic or social ones. They are also political: inequality leads to poorer political decision-making.

* The inequality that matters in this context might be more complex than simple Gini coefficients, being some mix of immobility, top income shares and an atmosphere of social distance and unequal respect.

** It’s worth asking how a privately-educated commodities trader who doesn’t listen to music, watch TV or read should have become regarded as a man of the people.

Another thing: you might object that the vote to leave the EU was the right one. However, in a good polity, the right decisions get made for the right reasons. This cannot be said of a campaign which was dominated by lies, racism and crass anti-intellectualism.

July 04, 2016

The news that the government might need to hire hundreds of immigrants to negotiate post-Brexit trade deals isn’t merely a delightful irony. It raises a serious question about the UK’s state capacity.

This refers (pdf) to the ability of governments to implement policies to achieve their objectives. Although it is usually discussed (pdf) in the context of less developed nations, it applies to the UK government now. Does it have the capacity to negotiate difficult trade deals, or to implement complex points-based immigration controls? The fact that we lack people capable of doing the former suggests perhaps not.

In fact, other things should strengthen our scepticism on this point. Larry Summers once wrote that "it is much easier to design policy than to implement it." The British government’s failure to introduce Universal Credit in a timely or cost-effective manner, and its mismanagement of the deportation of foreign students (in the “safe pair of hands” of Theresa May) give us two examples of this fact.

These, though, might be just specific manifestations of general defects. Christopher Hood and Ruth Dixon have shown (pdf) how the endless management reforms of the last 30 years have given us a civil service which “worked a bit worse and cost a bit more” than before. Giles Wilkes has written:

Much of the time, Whitehall throngs with officials struggling just to find out what is going on. The sound of dysfunction is not the cacophony of argument, but the silence of suppressed documents and unreturned phone calls.

Departments are inconsistent in how they format and organise their objectives. They confuse measures, milestones and means of reaching them. The inconsistency across departments and the sheer number of objectives questions how useful and usable they are – and crucially, whether they are actually being used to measure performance.

This suggests that government is failing to implement the Bloom and Van Reenen idea that management is a form of technology (pdf), in which there are clear targets, monitoring and feedback.

It is appropriate that I should be writing this in the week that the Chilcott report is finally published. Its massive delays remind us that complex tasks often take much longer than expected, in part because of the planning fallacy.

All this should add to our scepticism about whether Brexit can proceed smoothly, even ignoring (which we shouldn’t) thelegaltechnicalitiesandarguments. I fear that Brexiteers’ optimism on this point reflects what I’ve called cargo cult leadership: the “right leader-????-success” fallacy.

And herein lies another delightful irony. Many right-wingers have for years preached the virtues of small government and been sceptical of what the state can achieve. And yet it is now they who are placing massive and perhaps excessive demands upon the competence of the state.